Entrepreneurship Chapter 9 - The Organizational Plan

Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010. Chapter 9: The Organizational Plan Developing the Management Team  Investors will often demand that the management team not attempt to operate the business as a sideline or while employed elsewhere.  It is assumed the management team is prepared to operate the business full time at a modest salary.  Taking a large salary out of a new venture will be looked upon by investors as a lack of psychological commitment.  The entrepreneur should consider the role of a Board of Directors in supporting management in the new venture. Legal Forms of Business  The entrepreneur needs to studies the alternatives regarding the legal form of the organization.  Each of these forms has important implications for taxes, liability, continuity, and financing the new venture.  Proprietorship is a form of business with a single owner who has unlimited liability, controls all decisions, and receives all profits. Most common.  Partnership is two or more individuals having unlimited liability who have pooled resources to own a business.  C Corporation is the most common form of corporation. It is regulated by statute and treated as a separate legal entity for liability and tax purposes.  Liability is one of the most critical reasons for establishing a corporation. Costs of Starting a Business  The more complex an organization the more expensive it will be to start.  Legal advice should be sought to determine which legal form of business is best for you.  Corporations are the most costly to start. Continuity of Business  The main concern of a new venture is what happens if one of the entrepreneurs dies or withdraws from the business.  Partnership agreements should detail this issue.  How do we add family members as time goes by?  How do we determine who should succeed the entrepreneur?  The ability to raise new capital will depend upon the format of the business.  The entrepreneurs will want to maintain as much management control as possible.  There should be a legal agreement to distribute profits and losses. TAX ATTRIBUTES OF FORMS OF BUSINESS 1. Proprietorship is treated as individuals by the IRS. 2. Partnerships are similar but their legal format serves as nontaxable conduits of income and deductions. 3. Since the Corporation is viewed as an entity, it has the advantage of being able to take many deductions and expenses that are not available to the other formats.

Designing the Organization The design of the organization will be the entrepreneur’s formal and explicit indication to the members of the organization as to what is expected from them. 1. Organizational structure defines the jobs and the relationship these jobs have with each other. 2. Planning, measurement and evaluation schemes reflect the goals of the organization. 3. Rewards should be provided in the form of promotions, bonuses, praise and son on. 4. Selection criteria will need to be set for selecting individuals for each position. 5. Training can be in the form of formal education or learning skills. BUILDING THE MANAGEMENT TEAM AND A SUCCESSFUL ORGANIZATIONAL CULTURE  The entrepreneur needs to assemble the right mix of people to assume the responsibilities.  The team must be able to accomplish three functions; 1. Execute the business plan. 2. Identify fundamental changes in the business as they occur. 3. Make adjustments to the plan based on changes in the environment and market that will maintain profitability. Organizational Culture  You will need to consider personality and character of each individual to create a viable organizational culture.  The organizational culture will be a blend of attitudes, behavior, and dress and communication styles.  The desired culture must be outlined in the business plan.  The leader of the organization must create a workplace where communication from the bottom up is encouraged.  The entrepreneur should be flexible enough to try different things,  It is necessary to spend extra time in the hiring process.  You need to remember that it is easier to change a person’s behavior than attitude.  A positive organizational culture is challenging but necessary to the organization’s success. THE ROLE OF THE BOARD OF DIRECTORS 1. Review operating and capital budgets. 2. Develop longer term strategic plans for growth and expansion. 3. Support daily activities. 4. Resolve conflicts among owners and shareholders. 5. Ensure the proper use of assets. 6. Develop a network of information sources for the entrepreneur. Directors Should be Chosen to Meet the Requirements of the Sarbanes-Oxley Act;  Select individuals who can work with a diverse group and commit to the ventures mission.  Select people who understand the market environment or can contribute important skills to the new ventures planning process.  Select candidates who show good judgment in business decision making.